This edition of Footsteps Along the Path was initially issued by Clear Path Financial Education Services which has now become Kuehn Financial Education Services LLC. For more information about Kuehn Financial Education Services LLC, please email or visit www.kuehnservices.com.

Clear Path Credit Consultants believes:
If you build on your own skills,
Rely on your own abilities,
Increase your range of knowledge,
And get help when you need it,
You are the investment that will succeed above all others.

Welcome to the nineteenth edition of Clear Path Financial Education Services' Footsteps Along the Path. The goal of this newsletter is to provide relevant and succinct information on financial management to consumers and small business owners. It is designed to build upon previous issues, developing a clear path to financial freedom. Reader feedback is encouraged.

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In this issue:
* Article: Rising Consumer Interest in Interest Only Loans … This article is ideal for now and future reference.
* A Knowledgeable Consumer is Powerful … There is a special offer to help protect your identity!
* Seminars Worth Your Time
Visit www.clearpathservices.com

Rising Consumer Interest in Interest Only Loans
A couple of months ago my twenty - something hair stylist moved into a beautiful mission style home with many upgrades and a decent portion of land. As I looked at the photographs that showcased the assets of her newly built abode, I asked about the financing deal. She proudly proclaimed her real estate agent, who is a family member, took care of the mortgage arrangements. She gleefully stated it was a no money down interest only loan. I made eye contact with her through the mirror. She was smiling like the Cheshire cat in Alice in Wonderland. “Do you understand the implications of this loan?” I asked. She commented that it was unnecessary since her husband of six months makes the financial decisions. At this point I spun my chair around to look at her directly. I wanted her to be involved and in control of her financial life. Her body language told me what I had to say, she did not want to hear. So, after a very short time I stopped speaking.

I am confident as readers you will want to understand the pros and cons of no money down interest only loans. Particularly since some of you desire moving into your dream home and wonder how much of a mortgage you can truly afford. Please realize a home can be an asset but it is also a liability. We take on debt to purchase it and shell out money in the form of property taxes, insurance, and repairs.

What to consider:
1) Yes, the housing market is remarkably hot. While home values soar, there is no guarantee that prices will eternally rise. Currently, no money down is attractive, but it means more debt since the loan principle is greater. This equates to higher monthly mortgage payments than homes with a deposit. Ask yourself, what if my income declines? What if my credit card or other debt increases? What if a baby comes along with all his /her associated expenses? If you are already living paycheck to paycheck this could put your home in foreclosure.

2) Realize interest only loans don’t save you a bundle the first five years in comparison to a conventional loan. During this time, a 30 year conventional loan’s monthly payment consists of mostly interest. However, there is a portion going towards principle.

3) Many interest only loans are variable so your payment today may not be the same amount in six months. This will create havoc with household budgets.

4) At the end of the terms, usually 5 to 7 years the homeowner must pay the accumulated principal in a lump sum or refinance to keep the house. The payments will go skyward. Also, refinancing costs $2000 to $3000!

5) A home owner should have the option of paying down principle through out the life of the loan. This is noted in the mortgage paperwork.

6) Since people own a home 4 years on average in Arizona, you may say “no big deal, I’ll just move at the end of the loan terms”. But, you may not want to move, especially if you have children in school and your social life is centered in that community. Also, moving into a comparable house may be unrealistic due to future home costs and interest rates. For a primary residence, consistent mortgage payments and security in a 15 or 30 year fixed mortgage reign over unpredictable interest only loans and housing prices.
7) If home values decline you will end up owing the bank more than the house is worth. Remember, not one penny is going towards principle. I understand with high housing demands in the Valley of the Sun this seems unlikely, but it must be recognized as a possibility.

8) Interest only loans may be good for you if household income is expected to greatly increase in the next few years.

9) Interest only loans may be good if you are diligent at investing the difference in savings between an interest only loan and an amortized loan. But, remember no investment is a sure bet.

10) Interest only loans may be the mortgage vehicle best suited for investment properties. Your timeframe for keeping the property and the potential future market must be considered.

I wrote this article in early June then read June 9th’s The Arizona Republic article “Interest only loans soar”. It commented, “Home – buying trend could mean trouble for Valley real estate market. Interest only loans accounted for more than one in three loans funded in Arizona during the first three months of 2005.” Interest only loans are considered potentially high risk mortgages. Experts fear that buyers are overextending their financial reach. “Banks should be evaluating the risks of these loans, not just based on the initial loan terms but based on the loan terms that may roll into effect over the life of the loan” stated Julie Williams, Acting Comptroller of the Currency.

June 10th’s edition of The Arizona Republic’s “Fed upbeat on economy” Alan Greenspan expresses his concern over interest only loans, “The apparent froth in housing markets may have spilled over into mortgage markets.” His uneasiness mounts over dramatic increases in interest only mortgages and the introduction of exotic forms of adjustable rate mortgages.

The Arizona Republic on June 22nd carries the front page story, “Housing frenzy may cool”. Although, in the Glendale / Peoria community section of this edition, the headline states, “Housing market hotter than ever”. I cite the example of conflicting captions because there are many sides to a story, as many sides to life. In summary the articles expose very early signs of home sales taking longer and asking prices diminishing in certain areas of the Valley while other cities are gung ho in a seller’s market. This effects interest only loan homeowners banking on appreciation instead of equity when it comes time to sell their home.

I realize life takes folks on many different paths. However, my advice for a typical family purchasing their primary residence is to choose a conventional fixed rate mortgage. It is wise to lock into a low interest rate (who knows what the interest rate will be in 5 years) and an amortized payment. A knowledgeable consumer is powerful. I trust this information clarifies the hype surrounding no money down interest only loans.

(Note: Not all interest only loans are no money down. This article discusses interest only loans along with no money down interest only loans. Also, credit scores indicate the rate of interest. Please understand someone with a good credit score and a conventional loan may have lower monthly payments than a person with a low score and an interest only loan.)

A Knowledgeable Consumer is Powerful
Protecting your good name and credit is a challenge due to rising identity theft. Here are some tips to help.

Tip: Keeping good records in a time of theft is vital and only takes minutes to create.
Action: Photo copy what is in your wallet. Do both sides of each credit card and driver’s license. The back of credit cards have the customer service phone numbers and security identification numbers that are not embossed on the front of the cards nor included in the account numbers. I keep this information in a locked file cabinet, but I am considering a move to my fire proof security box.

Tip: Know that employment related fraud trumps credit card, bank and utilities fraud. In Arizona employment related fraud was a whopping 37% higher than the number two fraud, credit cards in 2004.
Action: Only write limited account information on the “for” line of your check because as it passes through the corporate processing channels any employee may note your personal information. Typically, it is best to write the last portion of account numbers on the “for” line. The company knows the remaining digits.

Tip: When information is stolen, place a fraud alert on your name and Social Security number.
Action: Call the three major credit bureaus and tell them to put an alert on your file. This will last ninety days. If someone attempts to open new credit in your name or use existing accounts not yet effected by the theft, the credit bureaus will contact you. Credit card companies will close accounts involved in fraud. Increasing the fraud alert warning time if illegal activity has occurred is highly recommended. The phone numbers are: Equifax (1-800-525-6285), Experian (1-888-397-3742), Trans Union (1-800-680-7289) and Social Security Administration fraud line (1-800-269-0271). Always contact the police in any theft or fraud case.

For additional information, please consider attending the Arizona Small Business Association’s HR Roundtable seminar on identity theft. It is free to the association’s members and $20 for nonmembers. As my readers, I have a special complimentary offer. If you are not an Arizona Small Business Association member and wish to attend, please contact me for a free workshop gift certificate. Event details follow in Seminars Worth Your Time.

Seminars Worth Your Time
July 7: Protecting Yourself and Your Employees from Identity Theft
11:30 – 1:00 pm: The Arizona Small Business Association, 4130 E. Van Buren St. Phoenix AZ
RSVP by July 5 at www.asba.com
HR Roundtable Chair Ginny McMinn has arranged for Detective Jim Owens of the Property Crimes Bureau, Phoenix Police Department, to present timely and important information on how individuals can protect themselves from Identity Theft. Detective Owens will share information on what identity theft is, what forms it can take, how it occurs, who is susceptible, and how to prevent this problem from occurring. A discussion and a question-and-answer session will follow.
Detective Owens has 15 years of experience as a police office. In addition to his current assignment in Property Crimes Bureau
For more info please visit www.asba.com and click on the calendar of events link.

July 12 – August 2: Write Your Business Plan in 4 Weeks!
9:30 – noon: The Arizona Small Business Association, 4130 E. Van Buren St. Phoenix AZ
RSVP by July 10 at www.asba.com, Cost for all 4 weeks is only $60
Whether you are starting a business or changing your company strategies, a business plan is the essential tool that gives you focus and competitive advantage. The four-week course is lead by Valley entrepreneurs who know the value of this living document. ASBA TIME sponsors this program. Debi Kuehn is a TIME facilitator and creator of Write Your Business Plan in 4 Weeks!
Students say:
“Taking the plunge to write my business plan has had the most profound effect.” – Lucy Herman, Herman and Associates LLC
“Thoroughly enlightening and very useful” – Shona Patel, Hoogly River

July 19: Career Technical Education Conference
Tucson, This conference is not open to the public
Debi Kuehn will speak and answer teachers’ questions on student competencies for the financial field, focusing on what high school students need to know to pursue a career in various financial areas. Debi and other speakers at this state wide event will also inform teachers about the changes in this industry. Debi participated in setting Arizona’s financial educational competencies at the end of 2004.

Deborah A. Kuehn is the owner, educator and consumer advocate of Clear Path Financial Education Services. Clear Path believes knowledge is power and prosperity.

PH: 623.580.9293

Written by Deborah A. Kuehn, MBA
All rights reserved
Clear Path Financial Education Services is a registered trade name

Issue XIX

June 22, 2005

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